UPDATE 1-NZ farmers eye dairy recovery despite global price fall

(Recasts and updates with farmer and analyst comment)

By Charlotte Greenfield

WELLINGTON Oct 5 A dip in global dairy prices
on Wednesday added to farmers' concerns that a nascent recovery
could be short-lived, although analysts said it was too soon to
tell whether the decline was a one-off.

Prices in the fortnightly Global Dairy Trade Auction fell 3
percent to $2,880, abruptly ending a two-month rally that
farmers had hoped would cap two years of plummeting prices amid
global oversupply and a slow-down in demand from China.

"It is a 'wait and see time' and I think for farmers it's a
case of carrying on with tight budgets and not getting carried
away," said Andrew Hoggard, dairy chairman for industry lobby
group Federated Farmers.

The New Zealand dollar fell to $0.7188, its lowest
level since August, after the auction, reflecting the fact dairy
accounts for more than seven percent of the country's GDP.

Although a drop at one auction alone was not cause for
panic, analysts said, further falls could call into question
last month's hike in milk price forecasts by Fonterra,
the world's largest dairy exporter.

Fonterra in September lifted its farmgate milk price
forecast for the current season by NZ$0.50 to NZ$5.25 ($3.84)
per kilogram of milk solids, citing reduced global supply and
steady demand.

"We'd need to see at least another auction of prices coming
down before we see that Fonterra milk price under pressure,"
said Susan Kilsby, analyst at AgriHQ.

Con Williams, agri-economist at ANZ, said a continued
recovery was still likely given solid demand in countries other
than China and a supply contraction in major markets bar the
United States as producers reacted to lower prices.

"Despite this (auction) we continue to believe the recent
rally in prices has more durability than recent years," Williams
said.

The Federated Farmers' Hoggard said farmers were looking for
the majority of auctions to be positive by December before
relaxing.

"The concern would be that suddenly the taps get turned back
on around the world," he said.

ZURICH, Aug 9 Nestle expects pressure
from the rising price of ingredients for its products such as
chocolate bars, coffee and soup to ease, helping it meet its
target for increasing sales despite tough markets.

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